Inverse ETFs in the Hot Seat

Leveraged ETFs have a bad rap—as they should. But while they could be disastrous for your portfolio, they probably won't damage the health of the market. Probably.

For individual investors, leveraged exchange-traded funds present a number of dangers, most prominently the chance to lose a lot of money very quickly. But are they dangerous to the health of the market, as well?

These niche ETFs are built specifically for traders: They aren't meant to be held, even overnight. If you own, say, a Direxion triple inverse Chinese-stock fund for more than a day, your investment moves in unpredictable directions, since the strategies used to create the leverage are reset every single day. So,...